Dangdang Defiant as Losses Balloon 当当网亏损扩大 但拒不认输
It’s only appropriate that I end this week with one more story on the bloody price wars in China’s e-commerce space that have dominated headlines these past few days, this time taking a look at the just-released quarterly results of Dangdang (NYSE: DANG), the only major publicly traded online merchant. Dangdang saw its loss more than quadruple in the quarter, as its marketing costs soared and margins crumbled due to all the price wars. (results announcement) But in an ominous sign that the company is prepared for a long battle, it also trumpeted the fact that it has big cash reserves that should enable it to weather the price wars for many quarters to come. Meantime, local media are also reporting that Jingdong Mall, one of Dangdang’s biggest and most outspoken rivals, is taking longer to pay its suppliers, in what could be the latest sign of distress among e-commerce companies. (English article)
The past week could well be remembered as one of the bloodies in Chinese Internet history, with a war of words between e-commerce giants Jingdong Mall, also known as 360Buy, and Suning.com (Shenzhen: 002024) quickly escalating to fever pitch, resulting not only in a war of words but also non-stop price slashing in a bid to steal business from each other. The war of words was just the latest flare-up in a series of non-stop price wars that have been going on for more than a year now.
Dangdang, a leading e-commerce firm that recently formed a strategic online tie-up with electronics retail giant Gome (HKEx: 493), reported that its second-quarter soared to 122 million yuan, or about $19 million, a huge jump from a loss of 28 million yuan a year earlier and also a sizable increase from an already large 100 million yuan loss in the previous quarter. The company blamed big jumps in its cost of revenues and marketing expenses for its deteriorating situation, and didn’t give any indication of when things might start to settle down.
But it also hinted that it wasn’t prepared to surrender in the ongoing price wars anytime soon by saying it still had plenty of cash reserves left. Specifically, Dangdang said it now has cash and cash equivalents totaling $227 million, meaning it could continue to fund its losses at the current rates for the next 3 years before it runs out of money. Of course there’s no guarantee Dangdang’s losses won’t continue to balloon in the quarters ahead, but even if they do it probably still has enough cash to fund those losses for the next 18 months to 2 years.
Others in the sector are also feeling the cash pinch, with Jingdong reportedly trying to raise funds by attracting new investors and Suning announcing earlier this week that it could raise up to $1.25 billion through its first-ever corporate bond issue. (previous post) With e-commerce leader Alibaba also well funded from its own profitable operations and plans to raise new money by attracting new investors, I don’t see any major easing in the price wars for at least the next year.
In fact, if we do see any major victims of the current price wars in the next 6-12 months, the most likely candidate would be Jingdong Mall, whose finances look the shakiest, especially if it fails to raise new money. The latest report could indicate how Jingdong’s situation is growing shakier, with an unnamed source saying the company has asked some of its suppliers to extend the time it pays them to 120 days, well above industry norms of 60-90 days. That would seem to indicate the company is feeling a cash crunch, and trying to gain extra time by forcing its suppliers to wait longer to get paid.
I’m frankly slightly skeptical of this latest report, as there are many big talkers in the market now who will say and do anything — especially under the protection of anonymity — to undermine their rivals. Still, there’s no denying the fact that the situation is becoming dire, and at the very least I suspect the current flare-up will subside in the next few weeks, though the broader price wars will continue.
Bottom line: Dangdang’s latest results indicate the battle among China’s top e-commerce firms is still intensifying, with most major players prepared to keep up the war for at least the next 1-2 years.
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